Planning for Retirement

22 May 2010

I spend a lot of time at Yahoo Answers, trying to learn what sort of things military families are wondering. I recently responded to a wife who was wondering how much retirement her husband could expect if he stayed in the military a long time. As I wrote, I thought that it might be helpful to other people who find retirement calculations confusing. I hope someone finds it useful:

"Your husband's retired pay will depend on how many years of service he has when he retires, and the amount of his pay when he retires, and which retirement plan was in effect when he entered the military. I'm going to use 2010 dollar - I hate estimating future dollars.

Your husband is eligible for the CSB/Redux plan. What that means is that 15 years of service, he will have to choose whether to take the $30,000 Career Status Bonus, or take the more generous High 3 retirement plan. It almost always makes more sense to take the High 3 plan.

Under the High 3 plan, retirement pay calculations start at 50% of base pay for 20 years of service. There is an increase of 2.5% of base pay for each full year of additional service, up to a total of 75% for 30 years of service.

High 3 means that your retirement pay is calculated on the average of your three highest years of pay. If you are promoted, you need to stay in another three years in order to get the full benefit of the higher pay scale.

An E-8 with 30 years of service earns $5,336 in base pay in 2010. If he/she were to retire this year, their retirement pay would be 75% of that, or $4,002 per month. To the best of my knowledge, there are no additional allowances or benefits that would increase that amount.

Additionally, active duty service members are able to contribute to the federal Thrift Savings Plan (TSP). If a service member is diligent about contributing to TSP through their military career, especially when they are young, they can accumulate a good sized amount of money to supplement their military retirement pay."